Question

If each unit of output can be sold at a price of $5 and incurs variable costs which are constant at $3 per unit, and if the fixed costs already incurred are $15,000, then the break-even output is:

Answer 1

the break-even output is 5,000 units

Step-by-step explanation:

Total cost = fixed cost + variable cost = $15,000 + number of units * $3

Sales = number of units * price = number of unit * $5

Break-even output is number of output which generate sales equals to total cost

Sales = Total cost

⇔ number of unit * $5 = $15,000 + number of units * $3

⇔ number of unit* (5-3) = 15,000

⇒ number of unit = 15000/3 = 5,000

Answer 2

Break-even point= 15,000/ (5 - 3)= 7,500 units

Step-by-step explanation:

Giving the following information:

Each unit of output can be sold for $5, variable costs are constant at $3 per unit, and if the fixed costs are $15,000.

We need to use the following formula:

Break-even point= fixed costs/ contribution margin

Break-even point= 15,000/ (5 - 3)= 7,500 units